Monday, November 14, 2011

Offer Choices Only with Information

Most of us like choices. We hate being trapped into a corner. Some come out fighting and rebellious if we think we're being told, "You have to..." There are always options; at minimum, it's a "yes or no" with "no" meaning I'd rather do something else than what's being offered.

Employees need choices for health insurance. Often employers present the basics, like a set of specifications of what's covered and what's not and what providers are in the network. This is giving data but it's not information. Information is when you can present the data with regard to how it will affect them. I've been in companies where we made sure the brokers presented different scenarios--healthy, chronic condition requiring treatment, chronic condition requiring ongoing prescriptions, occasional illnesses, acute condition requiring hospitalization, etc.--and how the medical insurance options affect employees and their families in those situations. The effect includes cost of premiums, plus any out-of-pocket expenditures. And the probability that any of those scenarios will happen (such as only 5% of insureds have more than $500 in claims through a year). From this information, they can make better decisions.

Likewise, we can present options to our customers. Fast delivery at a higher price or slower delivery at a lower price, volume discounts or one shot pricing, long term agreement or spot buy: this is just data. If we can help them analyze the options relative to their goals for higher purchase-price variance (PPV, i.e. lowest price) or lower inventory or lower expenses with a willingness to invest in some capital (like inventory or tooling), we can provide information that will allow them to make better decisions relative to the options you provide and weigh your proposal against your competitions.

When evaluating suppliers' or service providers' options, be sure to answer for yourself such questions in terms of total cost optimization. What will this option do for me with regard to my costs, expenses, capital investment, opportunity cost, risks of disruption or obsolescence, risks of sole sourcing, etc.? When you can convert your suppliers' data into information, you'll make a better decision.

Now I have run into some customers who didn't want options. They just wanted the best proposal we could present. He or she wouldn't tell us what they were trying to accomplish so it was difficult to guess what would work best for them. They were asking us to make the choice for them of the options we could provide. To our submittal, they would compare our competitors. Many times, it seemed these customers were only looking for the best PPV. Our response was not to place a high value on these kinds of customers, who only looked at one dimension, one choice. We wanted smart customers who understood that there are lots of options depending on what we're trying to do.

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